Goldman Sachs Launches High Income Preferred Stock ETF

Goldman Sachs Asset Management has introduced a new preferred stock ETF – its fifth fund for 2024. Goldman Sachs Accesses US Hybrid Preferred Stock ETF (GPRF) began trading on August 8, according to a company press release.

GPRF aims to provide investors with a high monthly income, the statement said. It does this through exposure to US preferred stocks and hybrid securities.

“Preferences have returned to an average yield of 6-7%, which is consistent with the historical context,” GPRF portfolio manager Gary Kessler said in an email, explaining the current market opportunity.

Kessler sees those yields as attractive, especially given expectations of a near-term Fed rate cut.

“(P)refers usually work well in a relaxing environment,” he notes.

Preferred stock ETFs offer income potential

The fund capitalizes on the unique characteristics of preferred securities, the release said. These attributes share both debt and equity. They typically offer higher yields than common stock dividends or corporate bonds.

According to the release, GPRF aims to invest in various segments of the preferred stock market.

“The preferred market can be a bit of a niche market because it includes (two) different trading markets, the $1,000 exchange trading market and the $25 (exchange) trading market,” Kessler said. “GPRF invests in both trading markets, offering a wider investment universe than other funds.”

GPRF uses a rule-based approach in its security selection process. Kessler notes that this methodology helps weed out stocks with negative yields until the next call dates, which can sometimes occur in the $25 market due to market dynamics. This screening process is aimed at enhancing the funds’ return potential.

The ETF also aims to provide diversification benefits. Kessler points out that preferred stocks “typically have lower correlations with investment-grade fixed income.”

Goldman Sachs’ expansion into municipal bond ETFs

The launch follows Goldman’s recent expansion into municipal bond ETFs. Last week, the firm introduced four actively managed municipal bond ETFs, including Goldman Sachs Ultra Short Municipal Income ETF (GUMI) and the Goldman Sachs Municipal Income ETF (GMUB).

Since its announcement, GPRF has already attracted $19.9 million in inflows, according to etf.com data. With GPRF, Goldman now offers 43 ETFs.

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